Cardiogenesis Acquisition

6 Months Ended

Jun. 30, 2011

Cardiogenesis Acquisition

Cardiogenesis Acquisition

4. Cardiogenesis Acquisition

Overview

     On May 17, 2011 CryoLife completed its acquisition of all of the outstanding shares of Cardiogenesis Corporation ("Cardiogenesis") for $0.457 per share or approximately $21.7 million. CryoLife used cash on hand to fund the transaction and will operate Cardiogenesis as a wholly owned subsidiary.

     Cardiogenesis is a leading developer of surgical products used in the treatment of patients with refractory angina resulting from diffuse coronary artery disease. Cardiogenesis markets the Cardiogenesis Transmyocardial Revascularization ("TMR") Holmium Laser System, which includes the holmium: YAG laser console and single use, fiber-optic handpieces, which are U.S. Food and Drug Administration ("FDA") approved for performing a surgical procedure known as TMR, used for treating patients with angina that is not responsive to standard medications. Patients undergoing TMR treatment with Cardiogenesis products have been shown to have angina reduction, longer event-free survival, reduction in cardiac related hospitalizations, and increased exercise tolerance. Cardiogenesis has also developed the PHOENIX Handpiece Delivery System, which is intended to provide TMR with concurrent delivery of physician specified fluids. These fluids could include biologics, such as stem cells or growth factors.

Accounting for the Transaction

     The Company has recorded a preliminary allocation of the $21.7 million purchase price to Cardiogenesis' tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of May 17, 2011. Goodwill has been recorded based on the amount by which the purchase price exceeds the fair value of the net assets acquired. The preliminary purchase price allocation is as follows (in thousands):

		Balance Sheet
		May 17, 2011
Cash and cash equivalents	$	650
Receivables		1,055
Inventory		852
Property and equipment		249
Intangible assets		11,900
Goodwill		4,442
Net deferred tax assets		4,674
Other assets		229
Liabilities assumed		(2,339	)
Total purchase price	$	21,712

     The preliminary allocation of the purchase price to intangible assets is based on valuations performed to determine the fair value of such assets as of the acquisition date. The Company may adjust the amounts recorded as of June 30, 2011 to reflect any revised evaluations of the assets acquired or liabilities assumed.

     CryoLife incurred approximately $2.0 million in transaction and integration costs related to the acquisition in the six months ended June 30, 2011.

Pro Forma Results

     Cardiogenesis' revenues of $1.2 million from the date of acquisition for the second quarter of 2011 are included in the Summary Consolidated Statement of Operations. Selected unaudited pro forma results of operations for the six months ended June 30, 2011 and 2010, assuming the Cardiogenesis acquisition had occurred as of January 1 of each respective year, are presented for comparative purposes below (in thousands, except per share amounts):

		Six Months Ended
		June 30,
		2011		2010
Total revenues	$	63,900	$	64,642
Net income		2,534		4,685
Pro forma income per common share—basic	$	0.09	$	0.17
Pro forma income per common share—diluted	$	0.09	$	0.16

     Pro forma results for the six months ended June 30, 2011 include Cardiogenesis acquisition and integration related costs of approximately $2.0 million, on a pre-tax basis. Pro forma disclosures were calculated using a tax rate of approximately 36%.